UNIVERSITATIS MARIAE CUR1E-SKŁ0D0WSKA LUBLIN - POLONIA
VOL. XL VIH SECTIO G 2001
Tohoku University, Japan
TOSHIYA UEKI
Legal regime ofworld trade under the GATT and WTO
System prawny handlu światowego w regulacjach GATT oraz WTO
THE PURPOSE AND THE SCOPE OF THIS ARTICLE
Inthis article,I examine thedevelopment and recent reconstruction of the legal framework of world trade by the General Agreementson TariffsandTrade (hereinafter, the GATT) and the World Trade Organization (hereinafter, the WTO).
The GATT was concluded in 1947 at first as the temporal agreement regarding “Tariffs and Trade” before the Havana Charter, which had been drafted as the constituent instrument of the International Trade Organization (ITO), failed to entry into forces because of the lack of the political support at later stage by United Statesfor the plan of the ITO. Thereafter, however, the GATT gradually developed its organization and structure as a sort of international organization and its role for the world trade became, not only strictly legally but also politically, larger and larger through 1950’s to 1980’s. As the result of the “Uruguay Round” negotiations in GATT from 1986 to 1994, the Marrakesh Agreement was concluded in 1994 and a new international organization for the world trade, namely the World Trade Organization, was established from 1 January, 1995. This newly-born WTO has on the one hand substantiallysucceeded to the assetsandpersonnel of the GATT in Geneva,buton the other hand it has reformed its organization and structure to some extent from the GATT and particularly strengthened itsdispute settlement powers.
In this paper,the development of legal regime of the GATT and WTO willbe examined fromthe historical and legal perspective.Afterthat, weconsiderthe
structure and function of the WTO at the moment and especiallynewdispute settlement procedures under the WTO regime. As a conclusion,we considerthe present functions of this new Organization and also its role for international trade in future.
THE BIRTH AND ORIGIN OF THE GATT
Basedupon the reflection that thetide of protectionalismand bilateralism in the worldtrade afterthe Great Depressionin 1930’s had becomeone factorto the outbreak of the Second World War, the idea to establish an international organizationformoreliberal world economicorder appeared mainly from the United States even during the SecondWorld War. At the first meeting ofthe ECOSOC (Economic and Social Council) of the United Nations in February 1946, the U.S. government proposed a resolutioncallingfor the convening of a “United Nations Conference on Trade and Employment” in order to draft a Charter for aninternational trade organization (1). Inthearea of international finance, the Agreements for the establishment of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD or the World Bank)were adopted atBreton Woods in New Hampshire in July 1944, and both of these two organizations became “SpecializedAgencies”of theUnited Nations in1947(2).Sincethen,the IMF and IBRD, together with the International Finance Corporation (IFC, established in 1956) and the Inter
nationalDevelopment Association (IDA, establishedin 1960), havebeen playing very active roles in world economy and international finance (3).
However, compared with the area of international finance and economy, international regime and international organization of world tradehave not been developed so smoothly. From the end of 1947 to the beginning of 1948, the United Nations Conference onTrade and Employment washeld at Havana in Cuba, and there the draftCharter of the International Trade Organization (ITO) was signed. Because the initiativefor this Organization mainlycame from the U.S. government andthe United States had the strongest power inthefield of world trade also at that time,whether the U.S. would ratify thisCharter or not was crucial for the actual establishment of the ITO. The U.S. government submitted the Charter of the ITO to theU.S. Congressfor the ratification several times, and extensive hearings were held on it. However, in the late 1940’s, the U.S.Congressbecame moreconservativeontrade issues and the support for the establishment of the ITO became lessand less. At last,in December 1950, the U.S. government officially announced thatit abandonedthe ratificationof the ITO Charter. Because of this giving up by the U.S. government for the ratification of the Charter, the establishment of the ITO has never been materialized.
The miscarriage oftheplan for the ITOdid not necessarily reflect, however, the actual needs for somekind of international regime orsystem inthe area of trade in worldscale. Before the Havana Conference, the preparatory committee for the Charter ofthe ITO had drafted the General Agreement on Tariffs and Trade at Geneva in October 1947. This General Agreement was entered into forces on January 1 st, 1948, butthisAgreement had been originallyconsideredas apart ofagreementwithin the ITO regime asawhole. However,after it became obvious that the establishment of the ITO would never be possible, the contractingparties of thisGeneral Agreementhave eventually beguntousethis Agreement as a legal basisof the regulations for the world tradeissues. In this way, the GATT has became a major legal regime of world trade, and it has gradually developedits organic structure and some important legal rules about the international trade. Some people have mentioned that the GATT had “birth defects”dating fromthis historyof its origin, and these backgrounds ofits birth have been casting a shadow on some serious problems facing the GATT later, which havepromptedthe reconstruction of the GATTinto the WTO as a result of the UruguayRound (see4, below).
THE RULES OF THE GATT AND ITS DEVELOPMENT
Evenifthe GATT had a“provisional” character fromits origin andit did not have a strong formal structure like other international organizationsastheIMF and IBRD, the GATT have provided some important basic legal principles governing the trade relations between the contracting parties. These basic principles in theGATT wereas follows (4).
1. Principle ofNon-Discrimination
First principle which the GATT has provided is the principle of non- -discrimination. This principle, in substance,impliestwoconcrete treatments in the relationship ofinternationaltrade. One is Most-Favoured Nations Treat
ment (MFN), which was oneof themostimportant principles in international tradeand provided in Article 1 of the GATT Agreement. Article 1 provided that
“any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the likeproduct originating in or destined for the territories of all other contracting parties”. This MFN is the most fundamental principlefor international trade, but theGATTAgreement itself has admitted some exceptions for this principle. For example, Article 24 admitted theexception forthe creation of customs union and free-trade area,
which has become a political controversy for the European Community. Also Article 20 admitted thegeneral exception forthepublicpolicy, and Article 21 admitted the exception for security reason. As many contracting parties of the GATT haveinvoked these escape clausesin order toavoidthe granting MNF,it is difficult to assert that MNFhas been actuallyapplied to everytrade relations all over the world under the GATT regime.
The other treatment derived from the principle of non-discrimination is National Treatment (NT), which was provided in Article 3 in the GATT Agreement. Paragraph 1 of Article 3 established the general principle that internal taxes and regulations “should not be applied -— so as to afford protection to domestic production”, and Paragraph 2required NT in respectof internal taxation (such as sales taxes or value added taxes) while Paragraph 4 required NT in respect of regulations affecting the sales and use ofgoods generally. As forthisNT also, its relationship to the generalexception clause of Article 20 has been very controversial. In addition, many contractingparties have sometimes made “hidden”barriers in order to protect theirown products or goods,or otherwise made some“disguised” discrimination for foreign products or goods. Therefore, a number of disputes regarding these issues have been occurred under the GATT regime.
2. General Elimination of QuantitativeRestrictions
Second principle of the GATT is the general elimination of quantitative restrictions. At thetime when the GATT wasestablished in 1948,such measures were widely usedby manycountriesall over the world.Article 11 of the GATT Agreement generally prohibited the use of quantitative restrictions. However, the GATT Agreement itselfpermitted some exceptions for this principle. First exception is the quantitative restrictionsonimportsof agricultural and fisheries products (Paragraph 2(c) of Article 11).Asthe result of the transformation of the GATT into the WTO by the Uruguay Round, this exception has been abolished in principle under the present WTO regime. Second exception is the quantitative restrictions designedto safeguard the balance of payment (Article 12 and Section В of Article 18). Third exception is the quantitativerestrictions introducedbydeveloping countries (Section C ofArticle 18). Underthe GATT regime, for instance, the principleof reciprocity of concessions was notappliedto the developing countries (5).
This general elimination of quantitative restrictions means that the GATT has permitted customs duties as only form of protection because, unlike quantitative restrictions, customs duties clearly show the extent ofprotection and allow thecompetition. And oneof theimportantfunctions of theGATT was to reduce these customs duties by a“Round”, which would be mentioned later in this paper.
3. Assurance of Fair Trade: Regulation of Dumping and Subsidies
Third principle of the GATT is the assurance offair trade. Forthat purpose, the GATT Agreement provided some regulations fordumping and subsidies.
Firstly, Article 6ofthe Agreement provided that “dumping, by which products of one countryare introduced into the commerceof another country atlessthan the normal value of the product, is to be condemned ifit causes or threatens materialinjury toan established industry in theterritory ofa contractingparty or materially retards theestablishment of adomesticindustry”(Paragraph 1),and, in such case, Article 6 authorized a contractingparty to impose theanti-dumping duties (Paragraph 2) or countervailing duties (Paragraph 3). However, these provisions in Article 6 were relatively brief andmany procedural and substantial issues regarding anti-dumping had not been so clear. Consequently, there were a lotof efforts in the GATT toreach subsequent agreementson more specific standards for anti-dumping (6). For example, in 1967, an Agreement in Interpretation of Article 6, which has been called as “the 1967 Anti-Dumpimg Code”, was signed (7).
Secondly, in order to guarantee the fairtrade in international relation, the GATT Agreement provided some regulations for government subsidies in Article 16. The wordings in Article 16 are rather ambiguous (8), and the criteria between the legitimategovernment activities of supportingdomesticindustries andillegalgovernmentsubsidieshave been one of the most difficult issues under the GATT regime (9). Also in this area, some subsequent agreements were concluded under the GATT regime (10). The topic of the regulation for the subsidies have been one ofthe most controversialissues even under thepresent WTO regime.
4. Reductionof Tariffs and Other Non-TariffBarriers
Asmentioned above in 2,under the GATT regime, quantitativerestrictions andimportquotas were prohibitedin principle(Article 9), and onlytariffs were admitted as a legitimate measure to protect domestic industries and markets.
Therefore, itwas oneofthe most essential tasks for the GATTto reduce these tariffs and other non-tariff barriers in order to promote more free trade in internationalrelations. This importantfunction of the GATT to reducetariffs and other non-tariff barrierswas carried out by multilateraltrade negotiations that were called “Rounds”. Eight Rounds ofmultilateral trade negotiations have been held under the GATT regime: the Geneva Round (1947), the Annecy Round (1949), the Torquay Round(1951), anotherGeneva Round (1956), the Dillon Round (1960-1961), the KennedyRound (1964-1967), the Tokyo Round (1973-1979), and most recently theUruguay Round(1986-1994) (11). Firstfive
Rounds dealt exclusively with tariffs reduction. From the Kennedy Round, attentionbeganto shift towards non-tariff traderestrictions and also thetradeof agricultural products. And the number of contractingparties participating in these Rounds under the GATT has been dramatically increased. In the first Geneva Round in 1947, only 23 countriesparticipated in that Round, but 74 countries participated inthe KennedyRound, 99 countriesparticipated in the Tokyo Round, and in the Uruguay Round 128 countries participated. In that sense, the GATT has developed to the real world-scale organization for international trade for more than 40 years.
THE URUGAY ROUND: THE ESTABLISHMENT OF THE WTO
Mainly because of its “birth defects”, the necessity for the reform of the GATT system had beenrecognized for a longtime. For instance,since theformal amendment of the GATT Agreement was legally very difficult and actually impossible, a number of “codes”were adopted asa result of the TokyoRound in ordertoregulatesome kindofnon-tariffmeasures, but contracting partieswere obliged to comply only with the codes whichtheycouldaccept, and, therefore, suchsystem was called, “GATT a la carte”. The institutionalstructure ofthe GATT was veryambiguousandnot very strong because of thehistorical reason of its birth, and the vital defect of theGATT systemwas that it had only very limited power for thedispute settlement. A Panel procedureunder theGATT regime for thesettlement of a trade dispute between two contracting parties was easily blocked by the objection fromone party of the dispute, andit also usually required a lot of time. And the legal validity of PanelReports,whether they were legally binding for the parties or not,was not clear because a Panel procedure under the GATT regimewas regarded, both bymany contracting parties andby many scholars, as a kind of“conciliation” not as ajudicial judgment.
In September 1986, a large Ministerial Meeting was heldat PuntadelEstein Uruguay for the purpose of startinga new trade Round. This Round is usually called the “Uruguay Round”, even though most ofits meetings were held in Geneva or other major national capitals. However, this Punta del Este Declaration said nothing about the establishment of a new international organization for trade to replace theGATTinstitution. At that time, thehottest issue formost industrialized countries, especially for the United States, was to include the topicof the regulation for servicesunder this new Round. It wasonly in early 1990that, for the first time, the official governmentproposal to establish aneworganization,called “World Trade Organization”, wasmade by Canada.
This proposal was supported by many industrializedcountries, but the position ofthe United States was not clear. The EuropeanCommunity andEuropean countries supported the idea of theestablishment of a new organization,but they
proposed the nameof “Multilateral Trade Organization (МТО)” insteadof the name of“World Trade Organization(WTO)”. In the end of 1991, the first full draft text, called “Dunkel Text” for the name ofthe Director-General of the GATT atthattime, Arther Dunkel, was proposed, and it contained a Charter of a new “Multilateral Trade Organization (MTO)”.
After new Clinton Administration took office in January 1993, the U.S.
Administration began to consider the Uruguay Round negotiations seriously, and especially for the three or four months before15 December 1993,thedate on which the authorization of “fast track” procedure by U.S. Congress to the President was expired, very intensive and hard negotiations were held between the United States and other major countries. On 15 December 1993, the U.S.
government finally accepted the notion of the establishment of a new or
ganization for trade on the condition of changing (or returningback) its name fromthe “MTO (MultilateralTrade Organization)”to the “WTO (World Trade Organization)”. Thus, the establishment ofanew international organization, called “World Trade Organization (WTO)”,was substantially decided. The final Ministerial Meeting was held atMarrakesh inMoroccoin April 1994, and “the AgreementEstablishing the World Trade Organization (theMarrakeshAgree ment)”was signed on15April 1994as a finalresult of the Uruguay Round. Over
120 nationsparticipated in the Uruguay Round negotiations,andamong them 113 countries were attended at Marrakesh. This WTO Agreementwas scheduled tocomeinto forces on 1 January 1995, and, surprisingly,76countries had taken necessary domestic procedure to ratify or approvethisAgreement before that day. There were a number of legal problems for each country regarding the domestic procedures for the approval or ratification ofthat Agreement, but major industrialized parties, for example, the United States, the European Community and Japan had finished such procedures before the due date (12).
Thus,fifty yearsafter theend of the Second World War and the establishment of the United Nations, aninternationalorganization for international trade was formally established as the WTO on 1 January 1995.
THE STRUCTURE AND FUNCTION OF THE WTO
1. Legal Structure ofthe WTO Agreements
The legal structure ofthe GATT had been a complex mixture ofalmost 200 treaty texts (protocols, amendments, etc.) andithad been alwaysclouded by its
“provisional” status and its “birth defects”. As a resultof the UruguayRound, the WTO Agreements were signed at Marrakesh, and the first part of these Agreements is theWTO Charter, formally called “the Agreement Establishing the World TradeOrganization”. This Charter itselfis a rather short document,
which is composed of 16 Articles, but it has extensiveAnnexes that were the
“singlepackage”result of the Uruguay Round.The WT О Charteritself provides only institutional framework of the WTO, for example, its Scope (Article 2), Functions (Article 3), Structure (Article 4), the Secretariat (Article 6), Status (Article 8), Decision-making (Article 9), Amendments (Article 10) and Member ship (Article 10-13) and so on.
This Agreement, however, has four Annexes, namely Annex 1 toAnnex 4, and Annex1 is, furthermore,composed of Annex 1A,Annex IB and Annex 1C.
Annex 1A is “Multilateral Agreements on Trade in Goods”, all ofwhich are mandatoryand denyingthe “pick and choose” approach, namely “GATT ala carte” at theTokyo Round. Thefirst part in Annex 1A is “GATT 1994”, the revised andall-inclusive GATTagreements, including“codes” and amendments which were renegotiated in theUruguay Round. Annex 1A alsocontains other 11 Agreements, for instance, Agreement on Agriculture, Agreement on Trade- -Related Investment Measures, Agreement onArticle 6 (Anti-dumping),Agree ment onRule of Origin, Agreement onSubsidies and CountervailingMeasures, Agreement on Safeguards and so on. As a result, the substantial rules and regulations of the GATT are, with adding to some new developments, fundamentally succeeded to the WTO.
Annex IB is “General Agreement on Trade in Services”, which is called
“GATS”,and Annex1Cis“Agreement onTrade-RelatedAspects of Intellectual PropertyRights”, whichis called “TRIPS”.Thesetwo areas, namely the trade on services and the issueoftrade-related intellectual Property Rights, arenewly dealt withunder the WTO regime, and a considerable part of thesubstantial rules and regulations for these issues are open for future negotiations amongmembers ofthe WTO.
Annex 2 is “Understanding on Rules and Procedures Governing the Settlement of Disputes”, which is often called the “DSU”. This “Understan ding” is alsoobligatoryfor all members of theWTO and, as a result,the WTO has integrated and unifieddispute settlementprocedures whichareessential for the task of the Organization. Many people, including the Director-General of the WTO, Renato Ruggiero, have pointed out that these dispute settlement proceduresaretheWTO’smost important contribution to the stability of global economybecause,without effective implementation and enforcement, anylegal rules and rule-based organization would be worthless. These new dispute settlement procedures will be examinedfurthermorelater.
Annex 3 provides the TradePolicy Review Mechanism (TPRM), by which theWTO will reviewthe overall tradepoliciesof each memberon a periodic or regular basis, and report on those policies. And Annex 4 contains four
“optional” Agreements that provide some flexibility for new subjects like Government Procurement.
2. New DisputeSettlement Procedures underthe WTO
Among thestructure of theWTO regime as awhole, asmentioned before, the most significant development from the GATT regime is the new dispute settlement procedures provided in Annex 2. The new WTO dispute settlement system is at once stronger, more automatic and more credible than its GATT predecessor. This is reflected in the increasing number of the cases and the increased diversity of countries using it under the WTO dispute settlement procedures. FromJanuary 1995 to May 1998, 133 cases (and 97 discrete cases, because sometimes acomplaint has multiplecomplainants)had been initiated under the newdispute settlement procedures of theWTO(13).As of July 1999, 175 cases (and 134 discrete cases) have been initiated and, consequently, the number of casesinitiated under theWTOprocedureis almost40casesperyear.
Among these 175 cases, Panelshavebeen established in 70cases. Therefore, on average 16 Panelshave been established peryear. Among these70 cases, Panel Reports have been issued in 29 cases, and among them the appeals to the Appellate Body by one of the parties have been made in 20 cases, and the Appellate Body has issued final Reports and the Dispute Settlement Body(DSB) has adopted final Reports in 17 cases.
Itis quite remarkable thathow thesenewdispute settlement procedures under theWTO regime have beenusedby many members duringthesefive years.We canfind some reasons why these new dispute settlement procedures have been used so frequently by the WTO members andachieved aconsiderablesuccess.
Firstly, the WTO Agreement has established a unified dispute settlement system for all parts of theGATT/WTО regimes, including the new areas of trade on services and intellectual propertyrights. Therefore, sometimes WTO Panels must consider the legal problems concerning environmental mattersas long as theyare related withthedisputecovered by theWTO Agreement. Secondly, and it might be more important in substance that these new dispute settlement procedures are far more well judicialized than its predecessor under the old GATTregime. The DSU reaffirms and clarifies that every member of the WTO has the legal right to initiate a Panel process. One of the most essential developments of the WTO dispute settlementproceduresfromthe GATT isthat someofthe vital decisionsduring theseprocedures, forexample, the establish ment of Panel, the adoption ofPanelReports by the DSB andthe adoption of AppellateBodyReportsby the DSB, are made bythe“negative consensus” rule.
(14)Under this “negative consensus” rule, unless otherwise decidedby consensus by theDSB,both the establishment ofPanels and the adoption ofPanels Reports and Appellate BodyReportsare made automatically.This rule functions to deny theactual right of “veto” ofone party of the disputes to the establishment of Panels and the adoption of Reports by Panels and the Appellate Body.
Consequently, Panel procedures under the new WTO regime have had more
juridical nature and characteristic. This tendency has been reinforced by the creation ofthenew AppellateBody as akind of “Appeal Court” among these procedures.
As a result, the newdispute settlement procedures under the WTO regime have beenwidely used notonly by industrialized countries likethe United States, the EuropeanCommunity and Japan,but also many developingcountries.This is one of the remarkable developments under the WTO regime that would strengthen the real “universal” character of the new WTO. Now, in fact, the WTO hasmore than 130 membersincluding not only allof majorindustrialized countriesbut also quite a number of developing countries, andsome important non-member countries like China are also applying to join the WTO, and probably they will become membersin nearfuture.
CONCLUDING REMARKS
Inthis article, I have examinedthe development of legal regime of theGATT and WTO, and the structure and function of the WTO at the moment and especially the new dispute settlement procedures under the presentWTO regime.
The more and more the world becomes interdependent in the areas of economy andtrade, therole of this new organizationwould become greater and greater. Only afterseveralyearsfromits birth, theWTOhasalreadybecomeone of the most importantinternational organizations around the world. Itsrules and good functioning are one of the most essential factors for satisfactory operation of world trade, world market and global economy. In these days, probably any country, or any individual, cannot live without having any relationship with globalnetworkof world economyandworldtrade. TheWTO will,without doubt, makea vital roleon international trade and global economy for the next several decades, and through such function it will indirectly contribute to the maintaining international peace and security. We could learn fromthe history that the crisis and chaos in the area of trade and economyinthe world had often led to the crisis for international peace and security. In that sense,the successofthe WTO in future will be vital not only toworldtrade, but also to our future in international society as awhole.
EDITOR’S NOTE
1. U. N. ECOSOC Res.13, U.N.Doc.E/22 (1946). John H. Jackson, William J. Davey and Alan O. Sykes, Jr., LEGAL PROBLEMS OF INTERNATIONAL ECONOMIC RELATIONS:
CASES, MATERIALS AND TEXT, Third Edition, West Publishing Co., St. Paul, Minn., 1995, p.
294.
